(Cash-flow analysis) The Aphrodite Company is a manufacturer of perfume. The company is about to launch a new line of products. The marketing department has to decide whether to use an aggressive or regular campaign.

The annual cost of capital is 7%. Calculate the NPV of each campaign, and decide which campaign the company should undertake.

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Aggressive campaign Initial cost (production of commercial advertisement using a top model): $400,000 First month profit: $20,000 Monthly growth in profit (month 2-12): 10% After 12 months the company is going to launch a new line of products and it is expected that the monthly profits from the current line would be $20,000 forever. Regular campaign Initial cost (using a less famous model): $150,000 First month profit: $10,000 Monthly growth in profits (month 2-12): 6% Monthly profit (month 13-): $20,000